Magistrate Judge Fallon recommends dismissing amended complaint for lack of subject matter jurisdiction

In a recent Report and Recommendation, Magistrate Judge Sherry R. Fallon found that plaintiff’s amended complaint, asserting U.S. Patent No. 6,587,441 (“the ‘441 Patent”), should be dismissed for lack of subject matter jurisdiction. Mayfair Wireless LLC v. Celico Partnership et al., 11-772-SLR-SRF (D. Del. Aug. 30, 2013). Defendants argued there existed “three breaks in the chain of title of the ‘441 patent” before its alleged assignment to plaintiff. Id. at 6. The named inventors of the ’441 Patent allegedly assigned the patent application to their employer, Gooitech, Inc. (“Gooitech”). Id. at 2. The Hinsdale Bank & Trust Company (“Hinsdale”) eventually “foreclosed on Gooitech’s assets, including the application for the ’441 patent,” and purchased those assets at a UCC sale in Illinois in 2000. Id. at 2-3. Hinsdale purportedly sold its rights in the ’441 patent application to Sierra Strategic Consulting (“Sierra”) pursuant to a bill of sale in 2001. Id. at 3. The bill of sale did not specifically mention the patent application, but referred more generally to “intellectual property rights that Hinsdale acquired from Gooitech.” Id. Sierra assigned its rights to 3P Networks Inc., which “allegedly transferred rights, title and interest in the ‘441 patent application” to Technology Alternatives, Inc. (“Technology Alternatives”). Id. Technology Alternatives, the patentee, eventually became a subsidiary of TechAlt, Inc. (“TechAlt”). Id. at 4. Service by Design, Ltd. (“SBD”) entered into a security agreement with TechAlt, and SBD purchased TechAlt’s assets (including the purported interest in ’441 application) after TechAlt defaulted on its obligations. Id. at 4. After subsequent assignments, the current plaintiff was allegedly assigned the rights to the ’441 Patent. Id. at 4-5.

Magistrate Judge Fallon first addressed whether “any alleged breaks in the chain of title occurring prior to the issuance of the ‘441 patent are irrelevant.” Id. at 6 (emphasis added). Magistrate Judge Fallon concluded that “[d]efendants have overcome the presumption” that the patentee, Technology Alternatives, “properly held legal title at the time the patent issued.” Id. at 8. Judge Fallon explained that “four of the six Named Inventors did not have written assignments on file with the PTO indicating their intention to transfer their ownership interests, in contravention of 35 U.S.C. § 261 and 37 C.F.R. § 3.81(a).” Id. Moreover, “[t]he request for issuance of the patent to Technology Alternatives is likewise missing from the PTO’s records.” Id. In light of these findings, Judge Fallon went on to “asses each alleged break in the chain of title, including those occurring prior to the issuance of the ‘441 patent.” Id. at 9.

With respect to the bill of sale between Gooitech and Hinsdale, Magistrate Judge Fallon found that “[t]he evidence . . . insufficient to support Mayfair’s contention that Hinsdale properly foreclosed on its interest in Gooitech’s property pursuant to the terms of its security agreement.” Id. at 12. Magistrate Judge Fallon noted that the “unsigned notice of public sale issued by Hinsdale on August 9, 2000 fails to list the collateral to be sold.” Id. Moreover, the “subsequent March 31, 2001 bill of sale between Hinsdale and Sierra . . . does not specify that the ‘441 patent application was among those intellectual property rights [noted in the agreement].” Id. at 12-13. Magistrate Judge Fallon thus declined “to assume the rights to the application for the ‘441 patent were included in the foreclosure sale,” and thus found a break in the chain of title. Id. at 13-14.

Next, Magistrate Judge Fallon considered the whether there was a break in the chain of title “between 3P Networks and Technology Alternatives because no written assignment regarding the transfer is on file with the PTO.” Id. at 14. Magistrate Judge Fallon found, however, that “the notice of assignment between 3P Networks and Technology Alternatives sufficiently sets forth an intent to transfer ownership rights in the ‘441 patent to qualify as an assignment for purposes of 35 U.S.C. § 261.” Id. at 15.

Magistrate Judge Fallon also considered, inter alia, whether the “absence of an assignment from Technology Alternatives to TechAlt” created a break in the chain of title. Id. at 17. While the parties agreed there was no formal assignment, Magistrate Judge Fallon still had to address whether “Technology Alternatives consented to TechAlt’s pledge of the ‘441 patent to SBD as collateral in the November 19, 2004 security agreement, whether such consent is valid, and whether an indirect transfer of the ‘441 patent to SBD would cure any defect.” Id. at 18. Magistrate Judge Fallon explained that “[e]ven if the court were to assume that state law permits Technology Alternatives to consent to TechAlt’s inclusion of the ‘441 patent as security, the Illinois UCC provisions are preempted by § 261 of the Patent Act because Technology Alternatives and TechAlt never executed a written assignment.” Id. at 19. Accordingly, Magistrate Judge Fallon could not “overlook the absence of a written assignment between Technology Alternatives and TechAlt,” and found another break in the chain of title. Id. at 20.

In light of the two breaks in the chain of title, Magistrate Judge Fallon recommended that the court grant defendants’ motion to dismiss for lack of subject matter jurisdiction. Id. at 24.

Mayfair Wireless LLC v. Celico Partnership et al., 11-772-SLR-SRF (D. Del. Aug. 30, 2013).

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